Tuesday, August 11, 2009

Our spending plan is working...I think

“We broke the budget,” my wife M said to me recently with a sigh. “This system isn’t working.”

She gave me a frustrated glance as she scribbled in the checkbook register we use to track our expenses. June and early July are heavy spending months in our household, with birthdays, Father’s Day, and trips to the beach all in the mix. Plus, with all the additional fun-n’-sun activities, the little pile of receipts on our kitchen counter grew relatively big before we got around to logging them. Who wants keep track of your budget when a nice, hot summer day beckons?

As a result, we’d overspent our monthly spending plan to the tune of about $150. And consequently we had less to save toward the down payment we’ve been building to buy a new home.

“Maybe we should try something different.” M said. “This is becoming a habit.”

It’s not broke because it does work

She had me there. It wasn’t the first time we’d “broke the budget.” In truth, our budget is fairly “fluid;” we may overspend one month, and catch up (or almost) in another. August, for example, is a great month for us, with no family birthdays or holidays with gifts we have to wedge into our spending plan.

But our system isn’t broken. In fact, I think it’s working quite well. Here’s why.

We aren’t overspending with credit cards. Our discretionary spending budget—how much we plan to spend on gas, groceries, gifts, entertainment, etc.—is fairly low, while our goal to save each month for our house down payment is fairly high. So any overspending simply reduces our savings amount that month. If our overspending resulted in racking up credit card debt, I’d be very worried.

(My sister commented to me that it may actually be harder to spend less if you’re saving more, and, ironically, she may be right. I find it easier to agree about to going out to dinner or to the movies when I know we have the money on hand to do so.)

We know when we’re overspending. Since we’ve been on this tighter discretionary spending budget for several months now, we have a good feel for when we’re exceeding our limit—even before we log in the receipts. And our spending behavior naturally slows down and causes us to question additional purchases when we think we’ve gone over. That’s the whole point of having a budget, to keep our spending under control, and our system is helping us do that.

We know why we’re overspending. A budget is about making choices, deciding what dollar goes where. In times that we spend more, we save less, and that’s not necessarily a bad thing; neither M nor I want to be so focused on saving that we become misers. Plus, we’re still making steady progress in building up our down payment, so it feels like we have a good balance between the two.

Doubts in the back of my mind

One thing about our overspending does gnaw at me a little; if, for some reason, we had to strictly follow a tight budget, would we have the discipline to do it? I’m not sure. Our record says we wouldn’t, but it doesn’t take into account a big change in mindset. It’s one thing to spend money you have. It's quite another to spend money you don’t.

We could find out soon. Some of the houses we’re seriously considering purchasing will stretch our budget even more and put our discipline to the test. If anything, it could make for some interesting blog posts.

So am I fooling myself that our budget system is working? I’d love to hear from you. Leave a comment and let me know.

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About Me

I'm in my 40s. I've worked since 1998 for a large investment company, first as a financial writer, today as a financial planner.
I passed the Certified Financial Planner(R) examination in July 2008, which covers insurance, taxes, retirement, and estate planning. (Note: I am NOT certified as a CFP(tm) practitioner yet; should be by 2011.) I've also served as a Good $ense ministry financial counselor, teaching others how to be good financial stewards of the blessings God has provided. I'm happily married, with an adopted college-age daughter, a teenage stepdaughter, and a young son and infant daughter. (Just your typical American family. ;)